Small Business Tax Questions: FAQs To Save You Money

If you are struggling with the complexities of the IRS tax codes thousands of small business tax questions present themselves.  How to tax code masters seem to make tax savings look effortless?  What deductions will benefit your business?  Can you deduct your car if you use it only part time for business purposes?

The following are some of the frequently asked small business tax questions the answers to which can save you thousands this tax season.

What are the types of business organizations? There are a wide variety of business organizations recognized by the state.  Limited Liability Companies are one of the popular forms of organization that can limit your personal liability and decrease tax exposure.   Additionally there are S Corporations and S Corporation organizations, the best of which for you will be determined by your business activities.

What are the 6 forms of business Organizations? For federal tax purposes, the 6 forms of business organization are Sole Proprietor (1040, schedule C), Corporation (1120), S-Corporation (1120S), Partnership (1065), Non-profit Organization (990), and Trust (1041).

How is an LLC company taxed? An LLC, if you are the owner, can be taxed as a sole proprietor, a C-Corporation or as an S-Corporation. If the LLC is owned by two or more, it will be taxed as a partnership, a C-Corporation or as an S-Corporation. It really is your choice on how your business will be taxed, savings should dictate your choice.

What is Sole Proprietor? These are businesses that are unincorporated. They are, for example, independent contractors, freelancers, and consultants that have not elected to incorporate. The form you use for this is Form 1040 when filing. You write your income and expenses on Schedule C of the 1040 form. A sole proprietor business is the most common form of business organization but lacks many tax saving benefits of the other organization types.

What is Corporations?  Corporation businesses are incorporated entities that minimize liability to the owners. Corporations are organized as for-profit entities. Corporations must have at least one shareholder. In corporations the shareholder and the owner are two different entities.

What are Partnerships?  Like corporations, business partnerships and shareholders are separate entities. In partnerships, at least one general partner is needed to assume unlimited liability. It is also a requirement for partnerships to have at least two shareholders.

What is an S-Corporation? Similar to Partnership, an S-corporation must have at least one shareholder but with a maximum of 100 shareholders only. A shareholder working for the company is entitled to a salary separate from profit share as a shareholder.

What are Trusts? These are organized to provide continuity beyond the passing of the preparer of the investments and business activities.

What are Non-Profit Organizations? N.G.O is formed for civic, artistic and charitable purpose. These organizations are generally exempted from federal and state taxation. These companies have to ensure to comply with federal and state laws covering charities. Otherwise, appropriate penalties and consequences apply.

Sole proprietors, S-corporations, and partnerships are taxed at the shareholder level, Corporations, on the hand are taxed at the corporate level.  Exploiting this difference can translate into significant tax savings and greater protection of your income.

What are taxable business expenses? All necessary, helpful and appropriate expenses for your business are taxable like computers and computer tables, envelopes, bond papers, telephone expenses and others.

Should you keep records? Yes, definitely you need to keep all your financial records, detailing the purpose of transactions, date and costs.

How long should you keep your financial records? You should keep your records for at least four years.

Why should you keep your financial record for four years? You should keep them for four years because in the case there are corrections to your tax return filed, you have 3 years to correct them.  Additionally the documents are needed in the case you are audited by the IRS.

Can the cost of a home office be deducted? Yes, but make sure all your receipts for business are intact and available just in case. The IRS can be very meticulous in deciding or approving which expenses can be considered as a business expense and can be deducted and which are home expenses.

What is an EIN? EIN stands for Employer Identification Number. This will identify the business entity as the taxpayer and helps the IRS keep track of your financial activity.

Can you turn a non-deductible commuting mileage into a tax-deductible business expense? Yes you can. As long as you are an owner of a small business and use a portion of your trips for business purposes you can turn the mileage into a tax-deductible business expense. Just make sure all your commutes are “work or business related.” Keep a log or record of your mileage. Check with the IRS or your accountant on how to compute business mileage.

When do you pay for estimated tax?  There are payment due dates. From January 1 to March 31 the payment due date is April 15. June 15 is the due date for April 1 through May 31. For June 1 to August 31 the due date is September 15, while January 15 of the following year is the schedule for September 1 through December 31.

Can you reduce taxes by moving or transferring your income to a wage paid relative? Yes, you can. By moving your income to members of the family employed in lower tax bracket you minimize your tax obligation. Consult your accountant to avoid crossing the line of what is allowable.

What are other methods of reducing your owed tax? There are several other methods that you can take advantage of. Be a benefactor and have a recipient for your retirement assets and insurance policies accumulated during your lifetime.  Offshore tax structures and simply by taking advantage of all the allowable deductions can reduce your owed taxes.

Should you seek the help of a tax professional? Definitely! Yes, you should seek the help of a tax professional or a tax firm. Dealing with taxes can be very confusing, information overload is common.  There are severe IRS penalties for incorrectly filing, mistakes can be misunderstood as tax evasion, and it takes a mammoth amount of time to complete.

In the tax game, experience can save you thousands of dollars and buy you the peace of mind knowing it was filed on time and correctly the first time.

There are probably more business tax questions you want to ask. The best thing to do to get these anxiety causing questions is to contact us today.  We are happy to help and put our near 30 years of tax planning experience to work in helping answer your toughest questions.  Knowing the answer to your small business tax questions will save you money, period.


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